Many beginner investors want their future to be connected with investing in the stock market. However, before we start investing our funds, it is worth getting to know the basics of investing on the stock exchange. Below we present 10 basic facts that are worth knowing about this type of investments.
- Currently, the vast majority of securities are issued and stored in electronic form, although it is possible to obtain a physical copy of the purchased shares or bonds at the express request of a shareholder.
- An individual investor has no direct access to the stock exchange. Such access is gained through a bank, a brokerage house, a broker or another intermediary.
- Stock exchange quotations are listed with a delay of about 15 minutes, as opposed to the forex foreign currency market, where changes are updated in real-time. For many types of securities, however, this does not matter too much.
- The reason why the companies issue shares and bonds is to raise supplementary capital. That is why issued shares are in principle more expensive than registered shares, for example.
- Every intermediary charges a commission. It can be charged on each transaction, or it can be paid, for example, every month. The amount of this commission is very important for those traders who intend to carry out many transactions for small amounts.
- The London Stock Exchange has a very long history, as it was established as early as at the end of the 16th century. During the Second World War, it was closed between 1 and 7 September 1939 and again for one more day in 1945 due to damage from a V-2 rocket.
- Many indebted companies issue new shares in order to improve the company’s budget. It is necessary to be conscious of such occurrences, as the continuous release of new securities may indicate that the company is trying to amass capital quickly, without thinking about the subsequent obligation to repay its shareholders.
- An investor buying shares has the right to participate in the so-called meeting of shareholders. In other words, he has a say in matters relating to the management of the company. However, the majority of shareholders buying shares on the stock exchange do so with the intention of their subsequent resale at a profit, rather than interfering in the company’s internal affairs. Moreover, if we own only a few shares, such say will not have any sway.
- Unlike investments in currencies, gold, and other assets that usually have a stable value, the greatest risk at the buyout of shares or bonds is the possibility of the company’s declaring bankruptcy. In many cases, it may be difficult to recover the money, but even after bankruptcy, the company has an obligation to repay its shareholders.
- The strategies for investing in the stock exchange can be short-term or long-term. However, most investors buy shares with the intention of a long-term investment, due to the intermediary’s commissions charged on each transaction.
These are only the fundamentals of what you need to know about investing in the stock market. They do not include the development of strategies, the selection method of a company to invest in, etc., as these are topics for separate extensive entries. The most important thing a novice investor needs to know is the possibility of losing a large part of their profit due to the commissions that the intermediaries charge. Therefore, when setting up an investment account, you should carefully compare offers and choose the most advantageous option, with the lowest possible commission on transactions.